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Exam 15: Investments and Fair Value Accounting

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Question 71

Multiple Choice

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The price that would be received to sell an asset or pay off a liability is the

A) fair value
B) market value
C) investing value
D) historical value

E) A) and D)
F) A) and B)

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Question 72

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Most companies invest excess cash in bonds as investments in order to profit long-term from the growth of the investment.

A) True
B) False

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Question 73

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A disadvantage of fair value use is that the comparability between companies may be impacted by different fair value measurements.

Ruben Company purchased $100,000 of Evans Company bonds at 100 plus $1,500 in accrued interest. The bond interest rate is 8% and interest is paid semiannually. The journal entry to record the purchase would be

Which of the following is part of the primary objective of investing in temporary investments?

The journal entry Pierce will record on June 30 will include a

Define debt securities and equity securities. Include their similarities and differences in your discussion.

What are the total proceeds from the February 1 sale?

Comprehensive income must be reported on the income statement.

On February 12, Addison, Inc. purchased 6,000 shares of Lucas Company at $22 per share plus a $240 brokerage fee. This purchase represents less than 20% ownership of Lucas Company. On August 22, Lucas paid a dividend per share of $0.42. On November 10, 4,000 shares of Lucas stock were sold for $28 per share less a $160 brokerage fee.​Prepare the journal entries for the original purchase, dividend, and sale.

Skyline, Inc. purchased a portfolio of available-for-sale securities during the current fiscal year. The cost and fair value of this portfolio on December 31 were as follows:​​ (a) Provide the journal entry to record the adjustment of the available-for-sale security portfolio to fair value on December 31. (b) Where will the information from the journal entry be reported on the financial statements?

Which of the following items would not affect the investor's income for the period?

The cumulative effects of other comprehensive income items are included in retained earnings on the balance sheet.

It is not possible for one company to influence the operating policies of another company unless it owns more than 50% interest in that company.

On June 1, $50,000 of treasury bonds were purchased between interest dates. The brokerage commission was $500. The bonds pay interest at 12%, which is paid semiannually on January 1 and July 1. What is the total cost to be debited to Investments-Treasury Bonds?

The equity method causes the investment account to mirror the proportional changes in book value of the investee.

Match each of the definitions that follow with the appropriate investment term (a-j) . -What occurs when a company purchases 50% or more of another company's stock

On March 1, Year 1, Chase Inc. purchases 35% of the outstanding shares of Glory Corporation stock for $325,000. On December 31, Year 1, Glory reports net income of $162,000. On January 15, Year 2, Glory pays total dividends to stockholders of $33,000. Journalize the three transactions.

Investment in Bonds is listed on the balance sheet after Bonds Payable.

On May 1, Cedar Inc. purchases $150,000 of 10-year, Knox Corporation 8% bonds dated March 1 at 100 plus accrued interest. Journalize the entry to record the semiannual receipt of interest on March 1, Year 2.